"I welcome them to the fight and I'm glad that they are taking that position," Commissioner George Bowman said.

The Birmingham Water Works Board and the City of Bessemer have filed an objection in federal bankruptcy court to Jefferson County's plan to finance its emergence from Chapter 9.

BIRMINGHAM, Alabama -- For decades the Birmingham Water Works Board and the City of
Bessemer have acted as business partners with the Jefferson County sewer
system, collecting sewer fees and cutting off customers who failed to pay, but
the county's proposed plan to exit bankruptcy has now turned those partners
into adversaries in bankruptcy court.

On Monday, the Birmingham Water Works Board and the City of
Bessemer jointly filed
a formal objection to the county's disclosure statements for its plan of
adjustment - the county's roadmap for emerging from Chapter 9 municipal
bankruptcy.

In the filing, Bessemer and the Birmingham water system say
that the county's plan does not provide any detailed analysis of the impact it
could have on the future of the county, and they argue that the county's plan
could jeopardize the growth of the region for decades.

Without a better plan, the bankruptcy judge should reject
the county's proposal, the filing said.

Three systems, one
bill

As Jefferson County sewer customers well know, sewer bills
come attached to their water bills, and their sewer usage is calculated from
their water consumption. In the court filing, Bessemer and the water board
argued that makes them intractably linked to the sewer system.

Or in other words, if sewer customers can't pay or won't
pay, and they have to be cut off, the water systems lose customers, too.

While both the Bessemer water system and the Birmingham Water
Works Board have customers who are not on the county sewer system, Jefferson
County sewer customers make up the core of both system's user bases.

The Birmingham Water Works Board handles about 113,000 accounts
for Jefferson County, the court filing said. Meanwhile, Bessemer handles about
19,258.

The county had proposed raising sewer rates 7.4 percent for
the next four years and 3.49 percent each year after that.

Question of
confidence

But last week, the
county commission voted again to raise its base fee - the amount it charges
customers whether they use any water or not - by another $5 per month. At the
time, county officials said that rising interest rates in the municipal bond
market and a steeper-than-anticipated drop in sewer usage necessitated the
additional fee.

That latest increase, which the county included in an amended
bankruptcy filing on Monday, would amount to a 13 percent increase in the
average residential sewer bill, beginning Nov. 1.

That latest hike, coming less than two months after the
county reached an agreement with its major creditors, calls into the question
whether it can accurately project its expenses, revenue and debt service needs
years into the future, the filing today said.

"There is significant uncertainty involved in a forty year
projection," the filing said. "The Disclosure Statement fails to identify in
the Financing Plan key assumptions and test various outcomes under adverse
conditions."

According to the county's bankruptcy proposal, the sewer
system projects that, when it raises rates, it will not see a one-to-one
increase in sewer revenues. That would seem to indicate that the county
anticipates a consistent and constant decline in consumption.

Likewise, the two water systems could see an identical
decrease in consumption and revenues, the court filing said.

Uncertain risks

The water systems' filing also questioned, in addition to
stunting residential and commercial growth within the county, whether the
county's plan risks putting the sewer system back into financial turmoil if it
cannot make its debt service in the future.

In particular, the court filing noted the
county's proposed schedule of escalating debt service. Typically, utilities
that are not project robust growth in customers or consumption finance themselves
with level debt service, but the county's plan shows combined principal and
interest payments that increase in all but four years of the 40-year life of
the debt.

Under the plan, the county's first debt service payment next
year would be almost $30 million next year. Its final debt service payment in
2053 would be $264.8 million, according to documents the county has filed in
court.

However, an analysis done for the Birmingham Water Works
Board by Porter White & Co. shows that its final payment would spike to
about $450 million. The county's plan,
the analysis said, assumes that it would apply a debt service reserve - a sort
of cushion for lean years - to the last year of debt service, accounting for
the difference.

What's more, the county's plan shows that it would not fund
$1.2 billion in capital expenses, including system maintenance, in the later
years of the plan, the court filing argues.

Insufficient
financial data

Jefferson County Commissioner George Bowman said he welcomed the objection to the county's bankruptcy plan, which he says puts too great of a burden on the ratepayers in his district. (The Birmingham News/Mark Almond)

Meanwhile, Jefferson County's financial reporting has fallen
behind, with its most recent audit being from 2011, and up-to-date monthly
financial reports are not included in the county's plan.

"The Disclosure Statement fails to discuss whether the
County has the capability of producing reliable financial information in a
timely manner on an annual and interim basis," the water systems' filing said.

For all of those reasons, the water systems said that the
court should reject the county's plan.

Affected parties have until Tuesday, July 30, to file
objections to the county's plan. The court has already scheduled a hearing on
those objections on Aug. 6.

Jefferson County Commissioner George Bowman said today he
appreciates the objection filed by Water Works Board.

"I welcome them to the fight and I'm glad that they are taking
that position," said Bowman, the only commissioner who last week opposed the
county's amended rate plan. "Now we have someone of the stature of the Water
Board standing up for the ratepayers."

Bowman said he always believed the rate increases were unfair. "If
the county has to endure this burden of higher rates than it needs to be spread
county wide . . . we all need to share in this burden and not just the ones
slated to take the hit right now which is primarily in (mostly Birmingham's)
District 1 and 2."

Commissioner Jimmie Stephens said he needed to review the filing
before commenting because he didn't have enough information and "I'm not sure
the Birmingham Water Works Board has the complete information," Stephens said.
Commissioner Sandra Little Brown declined to comment.

Efforts to reach Commission President David Carrington and
Commissioner Joe Knight for comment were unsuccessful.